Detroit quietly readies for war

Terror threat hikes concern over consumers, production

By

AugustCole

CHICAGO (CBS.MW) -- Terrorism is hard to talk about. So is war. Neither should have much to do with the car business, but these days they do.

When high-level government terrorism warnings spur those who don't already know duct tape's virtues to rush out and blitz the nearest hardware store for a roll of silver salvation, that's a sign that people are truly concerned.

If they're worried, you can imagine the auto industry is concerned too. Actually, they have been for some time.

"The auto industry is one of the industries most vulnerable to destruction of any type. The reason it's so vulnerable is in the last 20 years, the American automobile industry has earnestly adopted a very sophisticated system of assembling cars," said Patrick Anderson of Anderson Economic Group in Lansing, Mich.

The use of just-in-time manufacturing techniques, where assembly lines use supplies and parts as they literally come in the door, means there's little or no margin of error. Hiccups like those after Sept. 11 can be paralyzing as factories aren't designed to take on excess inventory, which they otherwise might if they feared disruption.

So far, though, the tempo is solid. As of last month, January's economic data showed that the auto industry is running strong, helping push overall industrial production higher than a year ago. See full story.

Hunkering down

From afar, it's hard to tell how the climate is changing in and around the Motor City. Preparation for war isn't something that people want to talk about. That makes sense on a lot of practical levels, even if you want to know that the right steps are being taken.

Ford Motor
F, +0.42%
is taking a "prudent" approach to security, said Jim Padilla, head of North American operations in an interview at the Chicago Auto Show this week. But Padilla said the company's concentration is on its recovery plan, which involves pulling off one of the most important product launches in its history this summer, the new F-150 truck.

Timing is crucial. He noted that Ford's production tapered off by design after Sept. 11 but demand did not. That pressured the No. 2 automaker when it faced having fewer vehicles on hand than it needed. Accordingly, that experience is shaping how the company is looking at how to handle another such incident. "I think we're going to have to be a lot more cautious this time," he said.

Also at the Chicago Auto Show, Gary Cowger, General Motors' president of North American operations, was adamant that the company has been preparing for any such issues for some time. Though he wouldn't comment directly, he said convincingly that the company has "taken this seriously since Day 1."

For the world's largest automaker,
GM, +0.11%
nothing should be taken lightly.

"When you're building on the scale that General Motors is, having two days of additional supply increases your cost by 1 percent. That's not an insubstantial amount of money," said Anderson.

Preparation for terror-related contingencies has been going on since Sept. 11 in every industry, of course. That underlying awareness of rising risks didn't crimp auto sales last year, but this year could be different. It's an easy time to put off big purchases if worries about work are eclipsed by flat out fear. Consumer sentiment? It's at a nine-year low. See full story.

Can spending only be rationalized on plastic sheeting and that wonderful tape, which is as useful for repairing windshields and coolant hoses as it is for keeping chemical weapons at bay? An extra bottle of Wild Turkey is surely justified, too, if you're considering riding out an attack in your basement.

Being flip won't work, however, in the boardroom. Gauging what these security changes could cost the industry isn't easy. And it may not matter, either. You can't put a price on safety, except when preparation fails. Then not enough was spent.

Arsenal of democracy

Detroit is no stranger to war. Ford's plants turned out B-24 bombers during World War II, Anderson pointed out.

This time the frontlines aren't halfway around the world. If the government's clarion call and latest elevation of its terror alert are to be taken at face value, the greatest risks are right here at home.

When you consider the hundreds of thousands of workers that are currently employed in the auto industry, it's obvious there are more important issues than profit here. That's not lost on Wall Street.

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